Professional Documents
Culture Documents
Conceptual framework for strategic management, the concept of strategy and the strategy
formation process- Stakeholders in business- Vision Mission and purpose- Business definition,
objectives and goals- corporate Governance and social responsibility- case study
External Environment- porter‟s five forces Model- strategic Groups competitive changes during
Industry Evolution- Globalization and Industry Structure- National context and competitive
advantage Resources- capabilities and competencies- core competencies- Low cost and
differentiation, Generic Building Blocks of competitive Advantage- Distinctive Competencies-
Resources and capabilities- durability of competitive Advantage- Avoiding failures and
sustaining competitive advantage- case study
Unit-III Strategies
Unit-I
Concept of strategy:
The term strategy is derived from a Greek word strategos which means generalship. A plan or
course of action or a set of decision rules making a pattern or creating a common thread.
Strategic Advantage
Organizational capability
Competencies
Synergistic Effects
Strengths and weaknesses
Organizational Resources
organizational behavior
Role of Objectives:
Objectives define the organizations relationship with its environment.
Objectives help an organization pursue its vision and mission.
Objectives provide the basis for strategic decision making.
Objectives provide the standards for performance Appraisal.
Characteristics of Objectives:
Objectives should be understandable.
Objectives should be concrete and specific.
Objectives should be related to a time frame
Objectives should be measurable and controllable.
1. Objectives should be challenging.
Corporate Governance:
Corporate Governance involves a set of relationships amongst the company‟s management its
board of directors, shareholders and other stakeholders. These relationships which various rules
and incentives provide the structure through which the objectives of the company are set and the
means of attaining the objectives and monitoring performance are determined.
Unit-2
Competitive Advantage
External Environment
Concept of Environment:
Environment literally means the surroundings, external objects, influences or circumstances
under which someone or something exists. The environment of any organization is the aggregate
of all conditions events and influences that surround and affect it.
Characteristics of Environment:
o Environment is Complex:
o Environment is Dynamic
o Environment is Multi-faceted
o Environment has a far- reaching impact
Meaning:
Companies in an industry often differ significantly from each other with respect to the way they
strategically position their products in the market in terms of such factors as the distribution
channels they use, the market segments they serve, the quality of their products, technological
leadership, customer service, pricing policy, advertising policy, and promotions. As a result of
these differences, within most industries it is possible to observe groups of companies in which
each company follows a business model that is similar to that pursued by other companies in the
group. These different groups of companies are known as strategic groups.
Proprietary group:
The companies in this proprietary strategic group are pursuing a high risk
high return strategy. It is a high risk strategy because basic drug research is difficult and
expensive. The risks are high because the failure rate in new drug development is very high.
Generic group:
Low R&D spending, Production efficiency, as an emphasis on low prices
characterizes the business models of companies in this strategic group. They are pursuing a low
risk, low return strategy. It is low risk because they are investing millions of dollars in R&D. It
is low return because they cannot charge high prices.
The task facing managers is to anticipate how the strength of competitive forces will change as
the industry environment evolves and to formulate strategies that take advantage of
opportunities arise and that counter emerging threats.
In conventional economic system, national markets are separate entities separated by trade
barriers and barriers of distance, time and culture. With globalization, markets are moving
towards a huge global market place. The tastes and preferences of customers of different
countries are converging on common global norm. Products like coco-cola, Pepsi, Sony
walkman and McDonald hamburgers are globally accepted.
The intense rivalry forces all firms to maximize their efficiency, quality, innovative power and
customer satisfaction. With hyper competition, the rate of innovation has increased significantly.
Companies try to outperform their competitors by pioneering new products, processes and new
ways of doing business. Previously protected national markets face the threat of new entrants
and intense rivalry. After regulation of Indian economy the industrial sector has witnesses‟
enormous changes. The banking sector reforms also contributed to changes in the economic
conditions of India. Merger, acquisition and joint venture with MNCs take place in large
number. Ultimately intense competition is felt in the industrial scene. A vibrant stock market has
emerged.
The distinction between resources and capabilities is critical to understanding what generates a
distinctive competency.
A company may have valuable resources, but unless it has the capability to use those resources
effectively, it may not be able to create a distinctive competency.
For Example:
The steel mini-mill operator Nucor is widely acknowledged to be the most cost efficient steel
maker in the United States. Its distinctive competency in low cost steel making does not come
from any firm specific and valuable resources. Nucor has the same resources as many other
mini-mill operators. What distinguishes Nucor is its unique capability to manage its resources in
a highly productive way. Specifically Nucor‟s structure, control systems and culture promote
efficiency at all levels within the company.
Toyota has differentiated itself from General motors by its superior quality, which allows it to
charge higher prices, and its superior productivity translates into a lower cost structure. Thus its
competitive advantage over GM is the result of strategies that have led to distinctive
competencies resulting in greater differentiation and a lower cost structure.
Consider the automobile Industry, In 2003 Toyota made 2402 dollar in profit on every vehicle it
manufactured in North America. GM in contrast, made only 178 dollar profit per vehicle. What
accounts for the difference? First has the best reputation for quality in the industry. The higher
quality translates into a higher utility and allows Toyota to charge 5 to 10 percent higher prices
than GM. Second Toyota has a lower cost per vehicle than GM in part because of its superior
labor productivity.
Generic Building Blocks of Competitive advantage:
Superior Quality
Superior Efficiency
Superior Customer responsiveness
Superior Innovation
Competitive advantage
Low cost
Differentiation
1. Superior Efficiency:
A business is simply a device for transforming inputs into outputs. Inputs
are basic factors of production such as labor, land, capital, management, and
technological know-how. Outputs are the goods and services that the business produces.
The simplest measure of efficiency is the quantity of inputs that it takes to produce a
given output. That is efficiency outputs/Inputs.
Two important components of efficiency:
Employee productivity
Capital productivity.
2. Superior quality:
A product can be thought of as a bundle of attributes. The attributes of many physical
products include their form, features, performance, durability, reliability, style and
design.
3. Superior Innovation:
Innovation refers to the act of creating new products or processes.
Product innovation is the development of products that are new to the world or have
Barriers to Imitation
Capability of competitors
General dynamism of the Industry environment
Avoiding failures and sustaining competitive advantage
When a company loses its competitive advantage, its profitability falls. The company does not
necessarily fail; it may just have average or below average profitability and can remain in this
mode for considerable time although its resource and capital base is shrinking. A failing
company is one whose profitability is new substantially lower than the average profitability of its
competitors, it has lost the ability to attract and generate resources so that its profit margins and
invested capital are shrinking rapidly.
Unit-3
Strategies
Generic Strategic Alternatives
Strategic Alliance
Meaning:
A strategic alliance is a formal relationship between two or more parties to pursue a set of
agreed upon goals or to meet a critical business need while remaining independent
organizations.
Types of Strategic Alliances:
Joint Venture
Equity Strategic Alliance
Non-equity Strategic Alliance
Global Strategic Alliance
Stages of Alliance operation:
Strategy Development
Partner Assessment
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Contract Negotiation
Alliance Operation
Alliance Termination
Advantages of Strategic alliance:
Allowing each partner to concentrate on activities that best match their capabilities
Learning from partners developing competences that may be more widely exploited
elsewhere.
Adequacy a suitability of the resources competencies of an organization for it to survive
Disadvantages of strategic Alliance:
Alliances are costly
Alliances can create indirect costs by blocking the possibility of cooperating with competing
companies, thus possibly even denying the company various financing options.
Joint ventures also expose the company to its partners and the unique technologies that it has
are sometimes revealed to its partner company.
McKinsey’s 7S Model
This was created by the consulting company McKinsey and company in the early 1980s. Since
then it has been widely used by practitioners and academics alike in analyzing hundreds of
organizations. The Paper explains each of the seven components of the model and the links
between them. It also includes practical guidance and advice for the students to analyze
organizations using this model. At the end, some sources for further information on the model
and case studies available.
The McKinsey 7S model was named after a consulting company, McKinsey and company,
which has conducted applied research in business and industry. All of the authors worked as
consultants at McKinsey and company, in the 1980s, they used the model to analyze over 70
large organizations. The McKinsey 7S Framework was created as a recognizable and easily
remembered model in business. The seven variables, which the authors terms “levers”, all begin
with the letter “S”.
Description of 7Ss:
Strategy: Strategy is the plan of action an organization prepares in response to, or anticipation
of changes in its external environment.
Structure: Business needs to be organized in a specific form of shape that is generally referred
to as organizational structure. Organizations are structured in a variety of ways, dependent
on their objectives and culture.
Systems: Every organization has some systems or internal processes to support and implement
the strategy and run day-to-day affairs. For example, a company may follow a particular
process for recruitment.
Style/culture: All organizations have their own distinct culture and management style. It
includes the dominant values, beliefs and norms which develop over time and become
relatively enduring features of the organizational life.
Staff: Organizations are made up of humans and it‟s the people who make the real difference to
the success of the organization in the increasingly knowledge-based society. The importance
of human resources has thus got the central position in the strategy of the organization, away
from the traditional model of capital and land.
15 Einstein College of Engineering
Shared Values/super ordinate Goals: All members of the organization share some common
fundamental ideas or guiding concepts around which the business is built. This may be to
make money or to achieve excellence in a particular field.
The seven components described above are normally categorized as soft and hard components:
Hard components
Soft components
Hard components are:
Strategy
Structure
Systems
Soft components are:
Shared values
Style
Staff
Skills
Distinctive Competitiveness
Meaning:
Distinctive Competence is a set of unique capabilities that certain firms possess allowing
them to make inroads into desired markets and to gain advantage over the competition;
generally, it is an activity that a firm performs better than its competition. To define a
firm‟s distinctive competence, management must complete an assessment of both
internal and external corporate environments. When management finds an internal
strength and both meets market needs and gives the firm a comparative advantage in the
market place, that strength is the firm‟s distinctive competence.
Defining and Building Distinctive Competence:
To define a company‟s distinctive competence, managers often follow a particular
process.
1. They identify the strengths and weaknesses in the given marketplace.
2. They analyze specific market needs and look for comparative advantages that they
have over the competition.
Balanced Scorecard:
The balanced scorecard is a strategic performance management tool- a
semi- standard structured report supported by proven design methods and automation
tools that can be used by managers to keep track of the execution of activities by staff
within their control and monitor the consequences arising from these actions.
History:
The first balanced scorecard was created by Art Schneider man (an independent
consultant on the management of processes) in 1987 at Analog Devices, a mid-sized
semi-conductor company. Art Schniederman participated in an unrelated research study
in 1990 led by Dr.Robert S.Kaplan in conjunction with US management consultancy
Nolan-Norton, and during this study described his work on balanced Scorecard.
Subsequently, Kaplan and David P.Norton included anonymous details of this use of
balanced Scorecard in their 1992 article on Balanced Scorecard. Kaplan & Norton‟s
article wasn‟t the only paper on the topic published in early 1992. But the 1992 Kaplan&
16 Einstein College of Engineering
Norton paper was a popular success, and was quickly followed by a second in 1993. In
1996, they published the book The Balanced Scorecard. These articles and the first book
spread knowledge of the concept of Balanced Scorecard widely, but perhaps wrongly
have led to Kaplan & Norton being seen as the creators of the Balanced Scorecard
concept.
Four Perspectives:
1. Financial: Encourages the identification of a few relevant high-level financial
measures.
2. Customer: Encourages the identification of measures that answer the question “How
do customers see us?”
3. Internal Business Process: encourages the identification of measures that answer
the question “What must we excel at?”
4. Learning and Growth: encourages the identification of measures that answer the
question “Can we continue to improve and create value?”
1. Customer needs: are desires, wants that can be satisfies by means of the attributes or
characteristics of a product a good or service.
For Example: A person‟s craving for something sweet can be satisfied by chocolates,
ice-cream, spoonful of sugar.
Factors determine which products a customer chooses to satisfy these needs:
Gap Analysis
Meaning: In gap Analysis, the strategist examines what the organization wants to achieve
(desired performance) and what it has really achieved (actual performance). The gap between
what is desired and what is achieved widens as the time passes no strategy adopted.
Corporate portfolio Analysis
Meaning:
Corporate portfolio analysis could be defined as a set of techniques that help
strategists in taking strategic decisions with regard to individual products or business in a
firm‟s portfolio. It is primarily used for competitive analysis and strategic planning in multi-
product and multi-business firms. They may also be used in less diversified firms, if these
consist of a main business and other minor complementary interests. The main advantages in
adopting a portfolio approach in a multi-product multi-business firm is that resources could
be targeted at the corporate level to those businesses that possess the greatest potential for
creating competitive advantage.
Meaning:
The organizational capability profile is drawn in the form of a chart. The strategists are
required to systematically assess the various functional areas and subjectively assign values to
the different functional capability factors and sub factors along a scale ranging from values of -5
to +5
Summarized form of OCP
SWOT Analysis
Meaning:
Every organization is a part of an industry. Almost all organizations face competition
either directly or indirectly. Thus the industry and competition are vital considerations in making
a strategic choice. It is quite obvious that any strategic choice made by an organization cannot be
made unless the industry and competition have been analyzed. The environmental as well
organizational appraisal dealt with the opportunities, threats, strengths and weaknesses relevant
for an organization.
There are various methods for the firms to enter into a new business and restructure the existing
one.
Firms use following methods for building:
Start-up route: In this route, the business is started from the scratch by building
facilities, purchasing equipments, recruiting employees, opening up distribution outlet
and so on.
Acquisition: Acquisition involves purchasing an established company, complete with
all facilities, equipment and personnel.
Joint Venture: Joint venture involves starting a new venture with the help of a
partner.
Merger: Merger involves fusion of two or more companies into one company.
Takeover: A company which is in financial distress can undergo the process of
takeover. A takeover can be voluntary when the company requests another company
to takeover the assets and liabilities and save it from becoming bankrupt.
Re-structuring:
Re-structuring involves strategies for reducing the scope of the firm by exiting
from unprofitable business. Restructuring is a popular strategy during post liberalization era
where diversified organizations divested to concentrate on core business.
Re-structuring strategies:
Retrenchment: Retrenchment strategies are adopted when the firm‟s performance is
poor and its competitive position is weak.
Divestment Strategy: Divestment strategy requires dropping of some of the businesses
or part of the business of the firm, which arises from conscious corporate judgement in
order to reverse a negative trend.
Spin-off: Selling of a business unit to independent investors is known as spin-off. It is
the best way to recover the initial investment as much as possible. The highest bidder gets
the divested unit.
Management-buyout: selling off the divested unit to its management is known as
management buyout.
Harvest strategy: A harvest strategy involves halting investment in a unit in order to
maximize short- to- medium term cash flow from that unit before liquidating it.
Liquidation: Liquidation is considered to be an unattractive strategy because the
industry is unattractive and the firm is in a weak competitive position. It is pursued as a
Entry Mode:
Global companies have five options to enter into a foreign market
Exporting
Licensing
Franchising
Subsidiary
Joint venture
Wholly owned subsidiaries
GE Nine-cell Matrix
This corporate portfolio analysis technique is based on the pioneering efforts of the General
Electric Company of the United States, supported by the consulting firm of McKinsey&
company. The vertical axis represents industry attractiveness, which is a weighted composite
Unit-4
Strategy Implementation and Evaluation
Introduction:
Organizational structure and culture can have a direct bearing on a company‟s
profits. This chapter examines how managers can best implement their strategies through
their organization‟s structure and culture to achieve a competitive advantage and superior
performance.
Implementing strategy through organizational design:
Strategy implementation involves the use of organizational design, the process of deciding how a
company should create, use and combine organizational structure control systems and culture to
pursue a business model successfully.
Strategy Implementation through Organizational design:
The implementation of strategy involves three steps:
Organizational structure
Organizational culture
control systems
Basics of designing organization structure:
The following basic aspects which require a strategist‟s attention while designing structure
Differentiation
Integration
Bureaucratic cost
Allocating Authority and Responsibility
Span of control:
Span of control means the number of subordinate‟s manager controls
effectively. The term span of control refers to the number of subordinates who report directly
to a manager.
Grouping Tasks, functions and Divisions
Tall and Flat organizations
Centralization
Decentralization
Organizational power:
The organizational power is the ability to influence people or things
usually obtained through the control of important resources.
Organizational Politics:
The organizational politics may be viewed as the tactics by which self
interested individuals and groups try to power to influence the goals and objectives of the
organization to further their own interest.
Sources of power
Ability to cope with uncertainty
Centrality
Control over information
Non-substitutability
Control over contingencies
Control over resources
Organizational Conflict:
Conflict may be defined as a situation when the goal directed behavior of
one group blocks the goal directed behavior of another.
Organizational conflict process:
Latent conflict
Perceived conflict
Felt conflict
Manifest conflict
conflict aftermath
UNIT-5
The strategic issues in managing technology and innovation and their influence on environmental
scanning, Strategy formulation, Strategy implementation, Strategy evaluation and control are
worth studying from the perspective of strategists in modern organization.
The employees who are involved in innovative process usually fulfill three different roles
such as:
Product champion
Sponsor
Orchestrator
Corporate entrepreneurship:
Corporate Entrepreneurship is also known as intrapreneurship.
According to Gifford Pinchot an intrapreneur is a person who focuses on innovation and
creativity and who transforms and dreams of an idea into a profitable venture by operating within
the organizational environment. Intrapreneur acts like an entrepreneur but within the
organizational environment.
Evaluation and control:
The purpose of research is to gain more productivity at a speedy rate. The
effectiveness of research function is evaluated in different ways in various organizations.
Improving R&D:
The following best practices can be considered as benchmark for a company‟s R&D
activities.
Corporate and business goals are well defined and clearly communicated to R&D
department.
Investments are made in order to develop multinational R&D capabilities to tap ideas
throughout the world.
Formal, cross functional teams are created for basic, applied and developmental projects.
INTERNET ECONOMY:
The internet economy is an economy is based on electronic goods and
services produced by the electronic business and traded through electronic commerce.
The Internet Economy refers to conducting business through markets whose
infrastructure is based on the internet and world-wide web. An internet economy differs
PREPARED BY
A.SHANMUGA PRIYA MBA
LECTURER, (DEPT OF MGT STUDIES)
EINSTIEN COLLEGE OF ENGINEERING
TIRUNELVELI – 12.